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HomeAll NewsMost read newsBusiness Leaders Biography
Age : 57
Country of residence : Unknown
Biography : Dr. Thomas Gottstein is a Chief Executive Officer at Credit Suisse AG, Credit Suisse Group AG, at...

EMEA Morning Briefing: Upbeat U.S. Tech Earnings to Lift European Stocks as Fed Awaited

07/27/2022 | 12:29am EDT

MARKET WRAPS

Watch For:

Eurozone M3, New Commercial Vehicle Registrations; Germany GfK Survey; France Consumer confidence Survey, Unemployment; Italy Consumer/Business Confidence Surveys; UK Capital Issuance; U.S. Interest Rate Decision; updates from Airbus, Iberdrola, EDP Renovaveis, Mercedes-Benz, Puma, Lagardere, Saint-Gobain, Carrefour, UniCredit, Credit Suisse, Holcim, Naturgy Energy, BASF, Deutsche Bank, MTU Aero Engines, Atos, Vivendi, TotalEnergies, GSK, British American Tobacco, Smurfit Kappa, Vopak, Equinor, Reckitt Benckiser, Rio Tinto, Lloyds Banking, Universal Music Group, FirstGroup, Fresnillo, Hiscox, Haleon

Opening Call:

Some strong U.S. tech earnings should help lift European stocks on Wednesday, as investors gear for the Fed decision. In Asia, stocks were broadly lower, along with the dollar and metals; while Treasury yields and oil rose slightly.

Equities:

European shares should post modest opening gains on Wednesday as a late rush of U.S. earnings helped boost the tech sector and lift the mood ahead of an expected Federal Reserve rate rise.

Wall Street futures were higher as investors processed a rush of second-quarter earnings results that sent Alphabet, Chipotle, Microsoft, and Texas Instruments shares up in after-hours trading.

The major U.S. indexes fell during Tuesday's regular session, but the afternoon corporate earnings blitz largely put investors in a better mood heading into Wednesday.

Along with the heavy slate of corporate earnings, investors continue to position their portfolios for news from the Fed. A 0.75-point increase in the target interest rate is expected with about 75% probability, while there is a 25% chance that the FOMC decides to increase the rate by a full percentage point.

"Anything other than a 75bp hike would be a huge surprise, but we expect Powell's press conference to be a repeat, more or less, of the June event, and the testimony he delivered to Congress on June 22 and 23," said Pantheon Macroeconomics.

"Powell will repeat that the Fed regards inflation as a scourge, especially on low-income households, and that policy makers are determined to bring it down."

More on the Fed:

One big risk stemming from the monetary policy event is that Jerome Powell, if asked about it, wouldn't endorse the "scaled-up expectations of rate cuts starting early next year," said Piper Sandler.

"The market might be too optimistic about the timing of Fed rate cuts. If inflation continues to prove persistent, the Fed will be reluctant to cut as soon as the market thinks, even in the presence of clear signs of recession."

Piper Sandler said the only other big risk is "the outside chance of a 100-bp move."

---

The Fed will "keep talking tough," said Barclays, despite hopes of a more dovish rhetoric following the expected 75-basis point move.

"The Fed will likely stick with its forecast, which sees it hiking all the way to 3.8% and then staying put, even though markets expect 70bp of cuts in 2023," said Barclays.

It said markets have been buoyed by the expectation of softer monetary policy, amid increasing indications the economy is cooling down.

"The Fed has seen what happens when it prematurely declares victory over inflation and is unlikely to repeat that mistake."

Stocks to Watch:

The war in Ukraine has created challenges for Norsk Hydro, but it has also presented an opportunity, said CFO Pål Kildemo.

Since Russia--one of the biggest aluminum producers in the world--invaded Ukraine, aluminum prices have plummeted. Meanwhile, Russia's squeeze on natural gas prompted the European Union to urge nations to prepare to reduce gas consumption, which creates some exposure for Norsk Hydro, said Kildemo.

But the company has seen increased demand from customers that have moved away from purchasing goods from Russian companies, according to Kildemo, who did not provide a figure for the market share gained. It's an "interesting opportunity" to grow the company's position, he said.

Forex:

The dollar edged lower in Asia but ING said the Fed's message about how much tightening may follow Wednesday's decision, how quickly and for how long, still poses challenges to risk assets that investors are seemingly unwilling to leave on the table ahead of the meeting.

Silicon Valley Bank said the Fed commentary will be key for the dollar.

"The risk in the trade is for [the Fed's] words to be less hawkish. If they said we do have global growth concerns, if they're less hawkish we could see a relief rally and a decline in the dollar."

Bonds:

Treasury yields were a touch firmer early Wednesday and the yield curve inversion continued to steepen ahead of the Fed's expected 75-basis point rate increase.

The inversion is seen by economists as a sign that investors expect a hawkish Fed to produce a recession, which in turn would call for rate cuts as soon as next year. Some pundits doubt that would be the case, forecasting instead that rates will remain high for longer as policy makers ensure that inflation is under control.

Now the three-month to 10-year yield curve is near inversion. Since early May this spread has been narrowing, and has moved from 2.27% on May 6 to 29 basis points on Tuesday.

Fed research says this measure is the most reliable signal of recession, and it's not moving in a Fed friendly way.

Energy:

Oil prices gained in Asian trade after they settled lower on Tuesday on recession fears. The oil market continues to show "significant downside risk and fear of recession," said Schneider Electric.

Other News:

The API reported inventories of crude oil in the U.S. fell by 4 million barrels in the latest week, while gasoline supplies fell by 1.1 million barrels.

The somewhat bullish results were released ahead of official inventory data from the EIA. Average forecasts in a WSJ survey indicate the EIA report will show crude inventories fell by 700,000 barrels from the previous week and that gasoline supplies slipped by 100,000 barrels.

Metals:

Gold futures weakened further, extending losses into a third day.

As investors continue to eye signs of possible recession and await the Fed decision, ANZ reckons gold will be supported by safe-haven demand in the near term. It noted recent weak economic data from the U.S. signalling a sharp fall in consumer confidence.

OANDA has put support for gold at $1,680 and resistance at $1,745 an ounce.

---

Copper also edged lower, with the FOMC meeting and the U.S. GDP data seen influencing prices, said DailyFX.com.

An overly hawkish Fed or weaker-than-expected GDP growth could spur dollar strength via safe-haven flows, which would likely weigh on copper prices, it said.

---

Chinese iron-ore futures were a touch firmer on demand hopes.

Guotai Junan Futures said the market increasingly expects steel mills' profitability is on the mend and higher steelmaking profit is typically positive for iron ore demand.


TODAY'S TOP HEADLINES

Biden to Speak With Chinese President Xi on Thursday

President Biden will speak Thursday with Chinese leader Xi Jinping, a U.S. official said, amid new tension over Taiwan, the war in Ukraine and a decision over whether to remove some Trump-era tariffs.

Separately, National Security Council coordinator for strategic communications John Kirby said Tuesday there would be a "robust agenda" during the call, including about Taiwan and the war in Ukraine. When they speak, it will be the fifth call between the two leaders, he said.


Senate Advances $280 Billion Bill Subsidizing Chip Manufacturing, Technology

WASHINGTON-The Senate voted 64 to 32 Tuesday to advance a $280 billion package of subsidies and research funding to boost U.S. competitiveness in semiconductors and advanced technology.

The vote required 60 votes to advance in the evenly divided Senate. Seventeen Republicans joined with all but one member of the Democratic caucus present to move the bill forward. Four senators were absent.


China Industrial Profit Rebounds as Eased Covid Curbs Boost Factories

China's industrial profit reversed a two-month fall to post a year-on-year increase in June, in line with the recovery of factory production after Covid-19 restrictions eased.

Industrial profit rose 0.8% from a year earlier in June, up significantly from a 6.5% decline in May, the National Bureau of Statistics said Wednesday.


Credit Suisse CEO Thomas Gottstein Set to Depart

Credit Suisse Group AG is set to announce the departure of Chief Executive Thomas Gottstein, according to people familiar with the bank, part of an effort to turnaround the struggling fortunes of the Swiss bank.

The timing of his departure couldn't be determined, but an announcement could come as soon as Wednesday, when the bank is set to release quarterly results, the people said. Credit Suisse flagged in June that it would report its third quarterly loss in a row.


LVMH Buoyed by Big Spenders in Europe and U.S.

Luxury company LVMH Moët Hennessy Louis Vuitton SE reported higher sales and profit for the first half of the year as free-spending shoppers in Europe and the U.S. more than offset Covid-19-related disruption in China.

The world's largest luxury group by revenue said Tuesday that overall sales increased 28% year-over-year to EUR36.7 billion, equivalent to $37.1 billion, in the six months to June 30. Profit in the period rose 34% to EUR10.2 billion.


U.K. Retail Prices Accelerated in July, Mainly Driven by Food

U.K. retail prices rose further in July, mainly driven by significant inflation in the cost of food, according to the latest report by the British Retail Consortium and NielsenIQ.

Retail prices rose by 4.4% on year in July, marking the highest rate of inflation since the index was started in 2005, the report said. Prices rose by 3.1% on year in June.


Write to paul.larkins@dowjones.com


Expected Major Events for Wednesday

06:00/SWE: Jun Foreign trade

(MORE TO FOLLOW) Dow Jones Newswires

07-27-22 0028ET

Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE 0.36% 89.21 Real-time Quote.-20.89%
ATOS SE 4.90% 8.56 Real-time Quote.-78.18%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 1.38% 0.65082 Delayed Quote.-11.82%
BARCLAYS PLC 0.54% 145.08 Delayed Quote.-22.83%
BASF SE 3.38% 40.94 Delayed Quote.-35.90%
BASICNET S.P.A. 0.60% 5.02 Delayed Quote.-13.22%
BRITISH AMERICAN TOBACCO PLC 0.54% 3244 Delayed Quote.18.04%
BRITISH POUND / US DOLLAR (GBP/USD) 1.26% 1.1274 Delayed Quote.-17.51%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.99% 0.73265 Delayed Quote.-8.62%
CARREFOUR 1.30% 14.4 Real-time Quote.-11.74%
CHIPOTLE MEXICAN GRILL INC. 0.16% 1506.02 Delayed Quote.-14.04%
CHRISTIAN DIOR SE -0.50% 592.5 Real-time Quote.-18.42%
COMPAGNIE DE SAINT-GOBAIN 2.93% 38.135 Real-time Quote.-40.12%
CREDIT SUISSE GROUP AG -0.93% 3.939 Delayed Quote.-55.18%
DEUTSCHE BANK AG -0.21% 7.63 Delayed Quote.-30.60%
EDP CORPORATION 2.22% 13800 Delayed Quote.0.00%
EQUINOR ASA 3.39% 370.25 Real-time Quote.51.80%
EURO / US DOLLAR (EUR/USD) 0.06% 0.97997 Delayed Quote.-13.87%
FIRSTGROUP PLC 1.24% 106.5 Delayed Quote.2.94%
FRESNILLO PLC 3.80% 798.4 Delayed Quote.-13.84%
GOLD 1.95% 1696.43 Delayed Quote.-9.21%
GSK PLC 1.06% 1319.6 Delayed Quote.-20.55%
GUOTAI JUNAN SECURITIES CO., LTD. 0.66% 13.67 End-of-day quote.-23.59%
HALEON PLC -3.03% 270.8 Delayed Quote.0.00%
HOLCIM LTD 0.63% 41.24 Delayed Quote.-11.89%
IBERDROLA, S.A. 1.44% 9.72 Delayed Quote.-7.95%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.05% 0.012263 Delayed Quote.-8.63%
LAGARDÈRE S.A. 1.72% 15.42 Real-time Quote.-37.82%
LLOYDS BANKING GROUP PLC 0.94% 41.78 Delayed Quote.-13.41%
LONDON BRENT OIL 0.78% 88.47 Delayed Quote.9.50%
LVMH MOËT HENNESSY LOUIS VUITTON SE -0.39% 608 Real-time Quote.-16.04%
MERCEDES-BENZ GROUP AG 1.22% 52.99 Delayed Quote.-22.55%
MICROSOFT CORPORATION 2.82% 239.47 Delayed Quote.-30.75%
MSCI TAIWAN (STRD) -1.48% 453.193 Real-time Quote.-38.03%
MTU AERO ENGINES AG -0.03% 154.2 Delayed Quote.-14.02%
NATURGY ENERGY GROUP, S.A. 1.90% 24.18 Delayed Quote.-17.11%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 1.66% 0.57152 Delayed Quote.-18.17%
NORSK HYDRO ASA 2.82% 60.5 Real-time Quote.-15.36%
PIPER SANDLER COMPANIES 4.20% 109.14 Delayed Quote.-41.33%
PUMA SE -0.83% 47.57 Delayed Quote.-55.38%
RECKITT BENCKISER GROUP PLC -0.84% 5926 Delayed Quote.-5.77%
RIO TINTO PLC 0.90% 4940 Delayed Quote.0.08%
S&P GSCI ALUMINUM INDEX 3.04% 141.07 Real-time Quote.-23.24%
S&P GSCI CRUDE OIL INDEX 4.86% 457.2507 Real-time Quote.5.69%
S&P GSCI NATURAL GAS INDEX -4.57% 302.3692 Real-time Quote.81.39%
SCHNEIDER ELECTRIC SE -0.27% 116.62 Real-time Quote.-32.19%
SMURFIT KAPPA GROUP PLC 1.74% 29.84 Real-time Quote.-39.45%
TEXAS INSTRUMENTS 3.20% 159.68 Delayed Quote.-17.88%
TOTALENERGIES SE 3.08% 49.76 Real-time Quote.8.17%
UNICREDIT S.P.A. 2.39% 10.708 Delayed Quote.-22.79%
UNIVERSAL MUSIC GROUP N.V. -0.52% 19.226 Real-time Quote.-22.01%
US DOLLAR / RUSSIAN ROUBLE (USD/RUB) -2.24% 58.875 Delayed Quote.-21.17%
VIVENDI SE 1.25% 8.072 Real-time Quote.-32.95%
WTI 1.59% 83.268 Delayed Quote.8.90%